Population aging, health care, and the macroeconomy: An introduction

Relationship between health and the macroeconomy has received increasing attention in practice. National health is not only a key measure of macroeconomic development in the United Nations Human Development Index, its interaction with macroeconomic development is also at the core of the World Health Organization Commission on Macroeconomics and Health. The macroeconomic causes and implications of rising health-care expenditures have frequently made to headline news. According to recent polls from Gallup, this issue tops America's “most important problem” list. The US Congressional Budget Office has placed it at the center of the sustainability issue concerning the nation's fiscal system going forward. As Alan Blinder (i.e., Blinder, 2013) puts it: “If we can somehow solve the health care cost problem, we will also solve the long-run deficit problem. But if we can't control health care costs, the long-run deficit problem is insoluble. Simple, right? Impossible? We'd better hope not.”

In recent years, the academic literature has also paid increasing attention to the related issues. Not surprisingly, a growing literature focuses on understanding the rising health spending and longevity (e.g., Fonseca et al., 2021, Hall & Jones, 2007, Zhao, 2014). Recent studies also explain why health spending is higher even though life expectancy is lower in the United States than in Europe (e.g., He et al., 2021), and why, on the one hand, there is a positive relation between health and long-run growth while, on the other hand, for industrialized economies, national health status tends to be negatively correlated with macroeconomic performance in the short run, improving in recessions and worsening in booms, though health spending generally declines during contractions and rises during expansions (e.g., He et al., 2023). Incidentally, the implications of health for social welfare play a central role in the recent macrohealth literature (e.g., Hall & Jones, 2007, Jones & Klenow, 2016, Murphy & Topel, 2006). Increasing attention has also been paid to understanding the implications of health risks for consumption, health spending, and allocation of wealth among bonds, stocks, and housing (e.g., Finkelstein et al., 2013, Yogo, 2016), and the trade- offs of provision of health-related social insurance on risk-sharing against dynamic disincentive (moral hazard) effect of health investment (e.g., Cole et al., 2019), and to linking health and the labor market (e.g., Fang & Gavazza, 2011, Feng & Zhao, 2018, Hosseini et al., 2021, Huang & Huffman, 2014). Recent academic investigations have also started to explore the role of health as a special type of human capital, in complementing or substituting the other types of capital, such as physical, financial, and knowledge capitals, as well as the implications of health risks for key life-cycle decisions, including the retirement decision, especially in an incomplete market environment. Another increasingly popular literature pays attention to the challenges imposed by population aging and rising health spending on the old-age security system, and their implications for public pension and public health insurance policies (e.g., Conesa & Kehoe, 2018, İmrohoroğlu & Zhao, 2018b).

This special issue consists of six papers that contribute to the different aspects of the macroeconomics of health care and aging literature from the experiences of different countries.

Feng quantitatively evaluates the macroeconomic consequences of alternative reforms to the US health insurance system, using a dynamic general equilibrium model with endogenous health capital.1 He finds that to improve individual welfare, reforms to the present health insurance system need to effectively reduce adverse selection, improve overall health status, or lessen tax distortions on labor supply.

Poonpolkul, Porapakkarm, and Wasi study the challenge imposed by population aging in Thailand, a developing country with a large informal sector. They highlight that unlike developed countries, workers in developing countries commonly transit from the formal sector to the informal sector as they age and approach toward retirement. In a calibrated life-cycle model with both formal and informal sectors, they show that such features of a developing economy has important implications for the impact of pension reforms. To cope with the challenges from population aging, they find that introducing means-tested pension benefits is preferred to alternative reforms that adopt universal basic pension income.

Bagchi develops a heterogeneous agent model with incomplete markets, wherein households grapple with uncertain labor productivity and make decisions regarding labor supply and savings throughout their lifecycle. He uses a calibrated version of the model to study Social Security reforms in the United States, specifically, the reform of introducing means-testing into the US Social Security system. The author finds that introducing means-testing into the existing US Social Security system substantially reduces its scale and thus its tax burdens, without sacrificing its core mission of providing insurance against the risk of poverty in old age.

Dai, Sun, and Webb investigate the impact of subjective mortality beliefs on social security benefits claiming behaviors. Using the health and retirement survey data, they document that while older individuals could predict their life expectancy correctly on average, the average variance of age of death calculated from their subjective beliefs is significantly lower than that calculated from the actual life tables. This finding suggests that older individuals have greater confidence in predicting their age of death than what the life tables suggest. Using a life-cycle optimization model, the authors show that greater confidence in predicting the age of death could lead to earlier social security benefits claim ages. However, they find that this effect is quantitatively not large enough to explain the prevalence of early claiming behaviors among American retirees.

Xu studies the role of intergenerational transfers as a substitute for China's underdeveloped social security system. Using the CHARLS data, she documents that both upstream intervivos transfers (from children to parents) and downstream intervivos transfers (from parents to children) are prevalent in urban China. Moreover, intervivos transfers are highly correlated with the relative income statuses of the parent and children. She develops a general equilibrium life-cycle model with two-sided altruism in spirit of İmrohoroğlu and Zhao (2018a) to rationalize these documented patterns of intergenerational transfers in China. Counterfactual experiments of removing economic risks or modifying the existing social security system show that intergenerational transfers are largely motivated by consumption smoothing across generations, and family insurance is an important substitute for public insurance in China.

Hsu and Le develop a life-cycle model with endogenous fertility choices and filial support that is motivated by social norm. They calibrate the model to Indonesia and use the calibrated model to study the impact of changes in filial support norm on fertility decisions. The authors find that the decline in social norm in terms of filial support can account for a significant fraction of the decrease in the fertility rate in Indonesia since 1960s. In addition, they find that economic slowdown also has a negative impact on fertility rate.

The authors declare no conflict of interest.

Not applicable.